These days, it is very hard to avoid hearing one thing or the other about stock market. You see news about the stock market and articles about the stock market on practically every web page you click on, on the radio, TV, and social media platforms.
However, just because you hear everything about stock and almost everyone around you seem to be investing in stocks or planning to invest in it, doesn’t mean you have to do it. You need to know what it is all about and the fact that it is an option.
You can simply keep your money in a savings account and earn a low return that comes with very low risk. You can also decide to invest in real estate or bonds or precious metals, or collectibles or foreign currency. All these things come with their own risks, after some level of return, and have different liquidity degrees. There are so many other forms of investment.
But is investing in stock worth it?
Stock enthusiasts may have been asking whether making an actual living through trading stocks for a long time. Making money from home just by trading stocks sounds fascinating, and some see it as an impossible fantasy. You can actually make a living trading stocks, but the real question is if it’s really worth it.
While some people have lost money over the long term, some have made a very good living trading stocks over the years. A lot of people stay in their home or on a tropical beach with their laptop and internet connection and carve millions from the market.
That is one of the beautiful things of trading for a living: freedom. You have freedom to be your own boss, you can work from wherever you are, and you can create time for fun without breaking any rules.
However, it isn’t as simple as it seems. Trading for a living is no child’s play. There are a lot of things you need to know and do.
Investing In Stock: What To Do?
If you are considering investing in stock, there are some things you need to know about it and do before you involve yourself in it.
Learn About Trading
Make sure that you spend some time educating yourself about everything that is related to stock trading. If you want to be a day trader looking for short-term gains or an investor seeking long-term profits, ensure that you in all the time and efforts necessary to gain more understanding of the stock trading world.
Choose a Good Trading Strategy
To start stock trading, you should develop a sound trading method. A method that takes advantage of volatility and at the same time, always keep risk management as its main principle. You should test this methodology over months or years, in every market environment. Try it with a demo account at first, then later you can try it with real money.
Set Some Income Aside
A lot of experienced traders recommend that people who are just starting should have at least a year’s worth of income stashed aside. This income isn’t the bankroll you will trade with – a separate capital is needed for that in amounts that will be determined by the kind of day trading you want to do – but money that will take care of your expenses in terms of food, housing, and insurance.
Having money stashed somewhere will give you peace of mind, allowing you to start your new career without financial pressure.
Prepare Yourself Mentally
Investing in stocks require psychological stability; you need to prepare yourself mentally for the income inconsistency to come. Of course, the goal of investing in stock is to have a reliable and consistent revenue stream. However, this will take time, efforts, and luck to achieve. The inconsistent income can be overbearing. So investing in stock is not for the faint hearted.
You need to be aware of these things if you want to make a living from trading stocks. If you are determined, patient, persistent, you will enjoy financial independence and rewards.
Things You Need To Know Before You Invest In Stocks
You need to know that investing in stocks is one of the so many options for investing your money. Don’t think there are no other ways to invest your money. Stocks are just one investment option that changed every time it is in the news. There are many other options that are more stable and don’t make a lot of noise, meaning you hardly hear about them everywhere.
There is substantial risk in investing in stock, especially in the short term. You will probably not hear about some other forms of investment such as the S&P 500 and the Dow Jones Industrial Average fluctuating – like going up 2% today and gown down 1% tomorrow.
With up and down movement like that, you can easily gain or lose in a single day what you would gain in a year if you had invested that money into a more stable and secure investment such as a savings account.
Another problem with investing in stock is that you there can be some periods that have more down days that up days. This happened in the latter part of 2008, when the stock market went down about 40% that year. That means if you had $10,000 in the stock market at the beginning of the year, it was worth about $6,000 at the end.
So, why should you invest in stocks? Over the long run (more than a decade), the stock market tends to grow at a rate of around 7% per year. Approaching that averages takes so many years, and sometimes it will be higher; sometimes lower.
That is not a guarantee, anyway. It inly happened in the past, and in the future, the trend should continue if people keep being productive and generating good ideas. So, if you want guaranteed return on your investment, you shouldn’t expect an annual return unless there is a drastic change in the economy.
So, why would you ever invest in stocks? Over the long haul – more than a decade – the stock market tends to grow at a rate of about 7% per year. It takes a lot of years to approach that average, though. Sometimes, it’ll be higher; sometimes, it’ll be lower.
Over the long-term, the stock market makes a whole lot of sense. If you are paying attention to the short term, it won’t make much sense to you. The difference is round ten years.
Different Brokerages Have Different Strengths And Weaknesses.
Just as everything has its strengths and weakness, different brokerages also have theirs. Some have high fees on transactions but will provide enough help for individual investors. Other brokerages may offer lower fees but keep their hands off. Some might even charge nothing for certain types of transactions, especially when you are buying the company’s investments.
Taxes On Stocks Aren’t As Scary As People See Them
A lot of people worry themselves about investing in stock. Stressing about investing isn’t necessary. If you invest in a 401(k). You will only pay taxes that are ordinary income taxes and your brokerage. It is usually tax free if you take money from a Roth IRA.
If you are investing in a normal brokerage and for other goals, you only need to pay taxes on your gains and your dividends. If you’ve owned that investment for a long time, you’ll pay long term capital gains taxes on the investment. This is calculated when you file your taxes. This is generally a lot lower than your normal tax rate and for a lot of Americans, it’s just 0% or 15%.
If you have owned a particular stock for over four months prior to a dividend, the dividend in the account (normal account) will be taxed at the lower long term capital gains tax rate. As for the retirement accounts, dividends just stay in there, and there is no need to worry about paying taxes on them until you start taking money from the account.
In a nutshell, whenever you invest some money, whether dividends or money you got from selling an investment, into your checking account, set aside some of the money for taxes.
Investing In Stock Requires Diligence
Investing in stock is not a child’s play. It requires diligence. Most people have tried and failed, and the diligent ones are making a good living doing it. This is why it is important to know everything you need to know about investing in stock; its benefits, its advantages, and its disadvantages. This means going into it with your eyes wide open and your brains sharp and alert.
Is investing in stock really worth it? As stated earlier, not everyone is successful at it. Investing in stock isn’t for everyone, and there are other ways you can invest your money and enjoy your profit. After reading this guide, you should know if you should invest in stock or try something else.
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